Monday, Jul. 27, 2015

Corporate Bond Market
Global equities took a beating overnight, led by a sharp sell-off in Chinese stocks as fears of an economic slowdown in the region persist.  Chinese officials enacted unprecedented measures to slow the sell-off,  but the Hang Seng was still off -3% and the Shanghai off 8+%.  In Europe Euro Stoxx traded off -1.7% .  Stateside equity futures lower, DJIA Fut -95 and S&P -9.5, as investors watch the price action overseas and wait for durable goods numbers and the Fed meeting later this week.   The treasury market rally continues, suggesting perhaps that the market is pricing in a delay in any Fed rate hike.  The 10yr last at 2.237%.  Credit is opening weaker in line with equities.  The Investment Grade index is +1.5 to start at 72.75/73.25. Cash is unchanged to a touch weaker depending on sector. The sell-off in commodities continues which should drag down the metals/mining and energy names.

Earnings season continues and will set the tone for a lot of secondary price action as well as the new issue calendar.  McGraw Hill out this morning with a strong beat, Eastman Chemical, Eaton Corp, Norfolk Southerm, and Pepco all out later today to name a few.  Last week we saw $43.5bln new issue price in the corporate market.  It was fairly well received despite the large numbers.  We are expecting a few new issues this week once we see some market stability.

Economic Data: Durable Goods Orders (8:30am), survey 3.2%.


Municipal Bond Market
Munis are stronger this morning after rallying into the weekend. We expect to see the market focused on the secondary this week with new issuance expected to be around $6bln versus $8.5bln last week.  This is the first week since July 4th that we have seen the calendar below $8bln.    New issue this week will be highlighted by multiple deals less than $1bln in size.  Notable names will include $990mln Michigan St Building Authority, $750mln NYC City GOs, and NYC IDA American Airlines bonds.  30-day supply is unchanged this morning with $11.7bln on tap over the next 30 days versus 11.5bln yesterday.

Muni funds snapped their streak of 12 straight weeks of outflows with $125.4mln in new cash flowing into funds.  This is a positive sign for the market with funds bleeding cash over the past few months.  This could be the start to a nice rally in munis with supply dropping to $6.9bln next week and attractive ratios across the curve.

On the PR front we continue to see sloppy trading in non-insured names as we approach the August 1st payments.   Benchmark GO 8’s of 2035 traded Friday @ $71.00 (11.81%) after trading as high as $73.75 (11.34%) earlier in the week.

30-Day visible supply: $11.7bln